More than a million Canadian homeowners will renew their mortgages this year — at rates that would have been unthinkable just a few years ago. For some, the bank may simply shut the door
The wave of homeowners who took out mortgages in the era of record-low rates is reaching a moment of truth. Renewing the contract — under today’s conditions — means a sharp increase in monthly payments. For most, it’s unpleasant but manageable. For some, the bank may refuse to renew altogether.
According to the Canada Mortgage and Housing Corporation (CMHC), more than 1.5 million households have already gone through renewal at higher rates. Another million will do so over the next year.
Licensed mortgage broker Leah Zlatkin explains: lenders typically get in touch a few months before the renewal date — and that’s when they begin assessing the borrower’s financial situation.
— If they see that you regularly miss credit card payments, that your accounts have negative balances — they may doubt the renewal and call to inform you of a refusal, — she says.
Financial difficulties are the main reason. But not the only one. A bank may also refuse if it considers the client a serious reputational risk — for example, if their name appears in a criminal fraud case.
CMHC is recording worrying signals in Toronto and Vancouver: mortgage delinquencies are rising, albeit from a low base. Especially vulnerable are those who bought a home for the first time during the pandemic — at historically low rates, high prices, and with a large debt-to-income ratio. Today, they are the ones in the most difficult position.
Brokers insist: there are options.
The first is to add a co-borrower or guarantor. A spouse, parent, brother, or sister with sufficient income and a good credit history can help secure approval.
The second is to increase income. Renting out part of the home or taking on an additional job can shift the debt-to-income ratio in the borrower’s favor.
The third is to reduce the debt burden. Ron Butler of Butler Mortgage gives a simple example: if there are two car loans, selling one car or paying off one loan early can change the picture.
— Banks don’t refuse renewals arbitrarily, — Butler emphasizes. — The federal government has made it clear: if a person pays on time, the lender is required to offer some form of renewal.
If none of the above paths worked, private lending remains. The rates here are completely different: at banks — around 4%, with alternative lenders — 5–6%, with private lenders — from 9% and higher.
— This buys time to get finances in order so you can then return to a traditional lender, — Butler says. — It’s expensive, but it’s not a dead end.
According to Zlatkin, there are still no signs that lenders will start refusing renewals en masse.
— As long as people pay on time, don’t have serious issues, and have a clean credit history — most will renew their mortgage without difficulty, — she concludes.
The key word is “as long as.”
